Do you need a hardware wallet?


Hi folks!

This post is dedicated to give and introduction to hardware wallets and their functunalities. Additionally the pros and cons will be highlighted, so you will be able to make an educated decision if to invest in a hardware-wallet.

Trezor Model T

I bought myself the Trezor Model T hardware wallet! After using it for two weeks i must say I am very satisfied with the product and the convenience in addition with security it grants me.  But first things first.

What is a hardware wallet?

A hardware wallet is, as the name suggests, a device for your wallet. Hardware wallets are a very secure way to protect cryptocurrencies like Bitcoin, Ethereum, Litecoin or Dash from access and to store them safely. (The Trezor Model T can store over 1200 different crypto-currencies)

To store your digital coins, the device is used in conjunction with a computer or smartphone. The computer and smartphone acts as a bridge for your digital currencies, the device stores your private keys to the respective currencies and they never leave the device. Hardware wallets are a form of "cold storage", the private keys are kept offline and are therefore absolutely secure.

Technical aspects

It all started with BIPs (Bitcoin Improvement Proposals), i.e. suggestions for improving Bitcoin. One improvement was that instead of using long complicated sequences of numbers and letters for the private key, a series of words can be used (BIP39). This sequence (seed), usually 24 words long, is used to create private keys for a digital currency.And this process is used by hardware wallets (not only for Bitcoin). When first created, the devices randomly generate 24 words and then use them to create addresses and private keys for digital currencies. For transactions with a hardware wallet, you first create a transaction with your computer or smartphone. However, the transfer is not yet signed; the computer or smartphone would not be able to do this. Therefore, the transaction including all details is sent to the hardware wallet. When the device, i.e. the user in this case, wants to make this transaction, it signs it and sends the signed transaction - by physically pressing keys - back to the computer and only then is the transaction made.

 

Pros

The devices offer several advantages. Here is a list of the most important advantages:

  • Private keys are never passed on to the computer
  • Malware cannot harm the devices
  • Have not been hacked to date
  • Digital currencies can be actively used
  • Easy to set up and use
  • The devices can store multiple cryptocurrencies
  • PINs and passwords provide protection against access
  • Transactions must be physically made with the device

Cons

However, these devices do not only come with advantages. The biggest disadvantage of the devices is certainly the cost. You have to pay for the greatest possible level of security. In addition, the wallets do not protect against all dangers. If you send the coins to the wrong address, they will be gone forever - even this wallet does not protect you from that. Moreover, you could unknowingly download a virus that manipulates cryptocurrency addresses, sending the digital currencies to the wrong addresses.

Of course, wallets also have attack surfaces. In the past, possible attacks were detected, but they could be closed by an update within a very short time. However, these attacks can or could only ever be carried out if one was in possession of the device.

Further dangers are:

  • Insecure RNG (Random Number Generator): The devices use an integrated random number generator. It becomes dangerous when the random number generator follows certain patterns and is not really random.
  • Poor implementation: As with any hardware, there is a risk that the implementation is faulty or even poor.
    Manufacturing: Even the best software is not safe from bad manufacturing and production. Since you usually have no insight into these steps, you have to trust the manufacturers (at least partially).
  • Shipping: During shipping parts or software could be exchanged unnoticed.

Actually, I feel very safe using my hardware wallet, I just wanted to give you an insight on all potential contras.

Is a hardware wallet really worth it?

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People often ask themselves whether a hardware wallet is worth it at all and whether they would not rather invest the money in digital currencies. The question is justified and the answer depends on many factors.First of all, the basic principle: Yes, a hardware wallet is worth it. You spend money once and are protected from malware, stock market hacks and the like. In addition, you can actively use the digital currencies, so no tradeoff here.

Investment as a decision-making aid

However, it doesn't make sense if you have invested 100€ in cryptocurrencies and you now buy a device that costs at least as much. In that case, a wallet for your computer or smartphone or a paper wallet is perfectly sufficient. However, if you want to invest significantly more money, a hardware wallet makes sense. Since everyone is their own bank when it comes to cryptocurrencies, everyone is also responsible for their own loss. With such a device, you can sleep peacefully and that alone is worth a lot.

Check out the Trezor Model T!

Cheers guys,

NFInsights

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Hi, I'm a German business manager exited about the NFT & Cryptoverse. Join me on my path!


NFInsights
NFInsights

This blog is for all crypto and NFT fanatics, and for beginners to explore the crypto-verse. Similar to pioneering in a new field, investing in cryptos or NFTs often comes with lots of personal research and trial and error. I hope the documentation of my personal experience and interest will guide beginners into a prospering future, and help proficient people to gather unique insights.

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